Market Monitor chemicals China 2019

Market Monitor

  • China
  • Chemicals/Pharma

16th July 2019

The repercussions of the trade dispute with the US have been limited so far, but several US-export dependent SMEs could fail should the dispute continue.

  • The repercussions of the Sino-US trade dispute are limited so far
  • Payments take between 60 and 90 days on average
  • Lending conditions remain very tight




2019 china chem 1





The Chinese chemicals industry has entered a phase of lower but still solid growth, following the slowdown in GDP expansion, which is forecast to increase 6.3% in 2019 and 6.0% in 2020. Growth rates of both Chinese GDP and chemicals demand remain above the global average. The industry also benefits from infrastructure projects abroad in the context of the “Belt and Road Initiative”.

China's chemicals export volume accounts for just about 10% of sector output. The direct effect of  US import tariffs on the industry is rather limited, as chemical deliveries to the US are low in value and volume terms. However, the impact is higher for suppliers of chemicals to Chinese export-driven industries (e.g. toys, textiles, etc.), which are deeply affected by US punitive tariffs.

Due to higher downstream demand and increased sales prices, net profit in the industry increased 30% in 2018, to CNY 900 billion. However, profit margins of chemicals businesses are expected to deteriorate in the coming months, due to higher oil price volatility and increased prices for commodity imports from the US and other countries.




2019 china chem 2




In order to retaliate to US tariffs, China originally imposed a 10% tariff on liquefied natural gas (LNG) imports from the US, increasing it to 25% in June 2019. The majority of US oil and gas is imported by large state-owned enterprises like Sinopec, PetroChina and CNOOC, which are largely able to cope with increased import costs, and can count on subsidies provided by the government.

In the Chinese chemicals industry both indebtedness and dependence on bank financing are high, while the lending policy of banks is restrictive for private-owned companies. Banks prefer to offer loans to state-owned enterprises or syndicate loans provided by the government.

On average, payments in the Chinese chemicals sector take around 60-90 days. The level of payment delays and insolvencies is average compared to other industries, and no major increase in business failures is expected in 2019, as demand for chemical products is relatively stable across all subsectors and among all buyer segments.

However, we can’t rule out the possibility of several US-export dependent SMEs failing should the trade dispute continue or escalate further. At the same time, supply side reforms and stricter environmental policies in China will continue to force inept and weak players out of the market.                                       

Our underwriting approach to the Chinese chemicals sector is generally neutral for most main subsectors (basic chemicals, petrochemicals, and fine and specialty chemicals). Their business performance remains steady, with increased use of advanced technology in order to produce higher quality products. In the agrochemical sector the issue of overcapacity has been successfully tackled by government measures to adjust the market and to increase environmental protection.




2019 china chem 3




However, downside risks remain, such as an escalation of the trade dispute leading to a serious economic slowdown and poor stock market performance hitting share prices of listed companies. We are more cautious with highly geared private chemicals businesses, as banks are currently restrictive in offering loans to privately owned companies. We are also more conservative in our approach to chemicals commodity traders, due to very low profits in this segment and ongoing price volatility. 

Our underwriting stance for the plastics subsector is restrictive, as there are many small players active in this segment, and the majority of products are still low-end. Plastics is the chemicals segment mainly affected by the Sino-US trade dispute, directly or indirectly (as suppliers to businesses dependent on exports to the US). Regarding plastic businesses exporting to the US we scrutinize financial strength, export share and if the goods are on the tariff list or not. The long-term trend for the segment seems to be more positive, as output is moving up the value chain.                          

2019 china chem 4

Our underwriting stance for pharmaceuticals is open as domestic demand is robust, while most of the players active in the market are state-owned enterprises.

When underwriting the chemicals/pharmaceuticals industry we take into consideration the performance of each subsector, the background of the businesses’ shareholders, the nature of the buyer (seller or manufacturer), their financial performance and funding facilities.



Related documents


Each publication available on or from our websites, such as, but not limited to webpages, reports, articles, publications, tips and helpful content, trading briefs, infographics, videos (each a “Publication”) is provided for information purposes only and is not intended as a recommen¬dation or advice as to particular transactions, investments or strategies in any way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided. While we have made every attempt to ensure that the information contained in any Publication has been obtained from reliable sources, Atradius is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in any Publication is provided ’as is’, with no guarantee of completeness, accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or implied. In no event will Atradius, its related partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information in any Publication, or for any loss of opportunity, loss of profit, loss of production, loss of business or indirect losses, special or similar damages of any kind, even if advised of the possibility of such losses or damages.